Measures how easily a company can pay interest on its outstanding debt.
Formula: Interest Coverage = EBIT / |Interest Expense|
How to read it: ≥ 3× = comfortable · 1.5–3× = narrow · < 1.5× = risky. Zero or negative EBIT is rated Bad. Interest expense reported as a negative number is treated as a cost.
Bondholders and lenders heavily scrutinize this to identify companies at risk of defaulting on coupon payments.